Marathon Oil CEO says company can profit with low oil prices

By Jordan BlumHouston Chronicle

Published 10:09 am, Tuesday, August 11, 2015

Marathon Oil President and CEO Lee Tillman said Thursday the company could sell 70 percent of its crude inventory at a profit with U.S. oil at $50 a barrel, but that the company will still operate with discipline in this low oil price environment.

While Marathon still has plenty of liquidity, the Houston-based exploration and production company posted a $386 million net income loss in the second quarter of the year.

Tillman said Marathon will maintain its 4.2 percent dividend yield while looking to sell non-core assets and continuing to reduce spending. Marathon reduced its 2015 capital spending to $3.3 billion, from about $3.5 billion, and he said it could be further reduced later this year. Marathon spent $5.5 billion in capital last year.

“We would anticipate certainly a materially lower (2016) budget than where we’re at with $3.3 billion,” Tillman said in a conference call.

Tillman said Marathon is putting a heavy focus going forward on its undeveloped Oklahoma acreage in the Stack and SCOOP — south-central Oklahoma oil province — plays, as well as its ongoing efficient production in Texas’ Eagle Ford Shale.

Without giving details on the buyer or buyers, Marathon is in the process of selling $100 million in natural gas assets in east Texas, north Louisiana and Oklahoma. Tillman said Marathon plans to sell at least $500 million in non-core assets with no set deadline in mind.

Raymond James & Associates analyst Pavel Molchanov questioned whether Marathon would “leave money on the table” by selling assets when so many other companies are putting acreage up for sale.

Tillman said Marathon will only make sales when there are strong offers to buy, such as with the pending $100 million deal.

“We don’t view these as distressed assets,” Tillman said.

In an analyst note, Molchanov said Marathon’s earnings came in near expectations and that its dividend yield and historical track record of capital discipline are positive indicators going forward.

The second quarter loss of $386 million, or 57 cents per share, swung down from the $360 million profit, or 53 cents per share, the company posted during the same time period last year.

Worldwide, Marathon Oil pumped 6 percent more oil and natural gas than the same time last year, excluding Libya. Its U.S. production numbers were even higher, with Marathon Oil squeezing 30 percent more from its fields than it did during the second quarter of 2014. The swell in production happened at the same time that production costs in North America tumbled 30 percent in a year, the company said.

In its scramble to cut back amid a global crude slump, Marathon Oil trimmed about 20 percent from its budget, or $100 million total from the same time last year, through reduced exploration and production expenses coupled with reductions in overall general and administrative costs. Capital spending plunged 40 percent as the company pulled back from U.S. shale plays.